Loyal Reliance ? Blog Archive ? Improving Cash Flow Management

31 Jul

Posted by: admin | General |

In today?s small business world, organisations will be able to perform better and achieve superior results if all staff is able to apply relevant finance and accounting tools in their jobs and functions. Also to enhance their chances of success in raising the necessary capital, SMEs need to strive to upgrade their cash flow management capabilities and in turn improve their creditworthiness in the eyes of potential lenders.

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Important cash flow components

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Below are essential cash flow components that all business need to know
?Accounts payable and cash flow. For optimum cash flow management, SME owners must examine their payables schedule. Are you paying for goods to quickly causing unnecessary cash flow pressure?
?Understanding Credit terms. How long does it take for you to receive payments from your customers? Credit terms affect the timing of your cash inflows. Offering trade discounts is one way you might be able to improve your cash flow.
?Monitoring your Accounts receivable. Accounts receivable represent sales that have not yet been collected in the form of cash. To properly manage cash flow, one must be aware of the negative cash flow affects caused by the time it takes customers to pay on their accounts.
?Manage your Inventory. An excessive amount of inventory hurts existing cash flow by using up money that could be used for other cash outflows. Only a productive amount of inventory is required on hand to meet the demands of customers.
?Project a worst-case situation ? To plan and be prepared for cash shortages, track cash flow closely so that one can predict potential problems and take steps to remedy them. A useful tip is to overestimate expenses and underestimate income at quarterly stages.

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Solutions for effective SME cash flow management
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Without any previous accounting experience it may sound daunting to invest in business accounting software. Here?s a brief analysis of why you can?t survive without it.
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In order to choose a business accounting software program, understanding some business accounting basics is most important. This includes screening the business and its accounting needs, and assess the products available today. Accounting software can not only help you reduce human errors in calculations, but it can help gain insights into business not readily available in paper form. Any accounting software purchased enables the quick development of financial statements, such as the income statement, balance sheet, and statement of cash flows. Instead of carrying folders of documents to the Bank Manager, the use of online accounting solutions makes it easier to work from any location. For example one can access the records, make payments, and view transactions from home, the office or with customers.

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Why SMEs need efficient cash flow management
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SMEs constantly face the challenge of income and expenditure rarely occurring together. For example cash inflows often lag behind, so it is important to maintain enough cash to deal with day-to-day running costs. Peter Metcalfe states in the online publication the Asian Banking & Finance. ?Efficient cash flow management comes in the form of a disciplined process of integrating day-to-day operations with the strategic business plan, and ensuring at every level of the business operation there is the cash available to operate.? The business context doesn?t change ? a local hairdresser or a supermarket chain, cash flow is the heart of any business. When managed poorly, it will obstruct business growth, and in the most extreme case lead to bankruptcy.

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Source: http://loyalreliance.com/improving-cash-flow-management/?utm_source=rss&utm_medium=rss&utm_campaign=improving-cash-flow-management

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